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1. The math behind the indicator is as follows:
(Latest Close - Prior Close) * Latest Volume
2. You then take the Exponential Moving Average of this number. Specifically, the conventional use is to focus on looking for the EMA over 2 and 13 periods.
3. The textbook rule is to trade in the direction of the 13 EMA. So, when the 13 EMA is positive, the trend is bullish and one wishes to look to buy; when it is negative, one is looking to sell. However, the conventional use is to look for the 2 EMA to be the opposite of the 13 EMA; meaning the following:
(Latest Close - Prior Close) * Latest Volume
2. You then take the Exponential Moving Average of this number. Specifically, the conventional use is to focus on looking for the EMA over 2 and 13 periods.
3. The textbook rule is to trade in the direction of the 13 EMA. So, when the 13 EMA is positive, the trend is bullish and one wishes to look to buy; when it is negative, one is looking to sell. However, the conventional use is to look for the 2 EMA to be the opposite of the 13 EMA; meaning the following:
- if 2 EMA negative and 13 EMA positive == BUY
- if 2 EMA positive and 13 EMA negative == SELL
- if 2 EMA and 13 EMA both positive == NO SIGNAL
- if 2 EMA and 13 EMA both negative == NO SIGNAL